In the construction industry, the practice of retentions is the withholding of money in lieu of outstanding work. In domestic terms, it’s basically a hedge against snagging. However, this has come to be abused and used as a way of holding back money to help bolster contractor balance sheets. Applied across many suppliers, to a single contractor it can amount to a large sum of money. Essentially it can become a form of late payment.
In the UK the construction industry is hemorrhaging almost £1m each working day, £4.5m a week, £20m a month, mostly from SMEs. Following the Carillion liquidation, there is an unprecedented campaign from industry calling on the government to act.
Proposals to stop the abuse of retentions have been made before, but in January 2018 the Aldous Bill passed its first reading unopposed. The Bill seeks to amend the Construction Act, to ensure that retention monies are held in a third-party trust account thereby leaving them less vulnerable to abuse.
To put this in perspective, abuse of retentions has been legislated against in many other countries, including the USA, Germany, France, New Zealand, Australia and Canada. The U.K. is lagging behind.
The bill has 12 parliamentary sponsors across all parties. It is supported by more than 110 MPs, again across all parties and it has official support from more than 70 trade and industry bodies of which The Prompt Payment Directory is one.
The bill goes for its second reading in the House of Commons on Friday 27th April.